Edited version of private ruling

Authorisation Number: 1011612341528

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Ruling

Subject: GST and the margin scheme

Question 1

Is the amount of the Facility Payment included in the consideration for the acquisition of the real property and accordingly included in the total consideration of for the entire development for the purposes of subsection 75-10(2) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, the amount of the Facility Payment is included in the consideration for the acquisition of the real property and accordingly included in the total consideration for the entire development for the purposes of subsection 75-10(2) of the GST Act.

Question 2

Can the consideration for the acquisition of the real property be apportioned on the basis of area for each development stage to ascertain the proportionate amount of the consideration that relates to each stage (stage cost base)?

Answer

You can use any method to apportion the consideration for the acquisition of the real property to each development stage to ascertain the stage cost base, including the area method, provided that the method of apportionment you choose is fair and reasonable and takes into account the particular facts of your circumstances. The area method of apportionment may not yield a fair and reasonable result in your circumstances.

Question 3

Can the stage cost base be apportioned to each lot within that stage on the basis of either area, number of lots or anticipated selling price to ascertain the proportionate amount of the consideration that relates to each lot (lot cost base)?

Answer

Yes, you can use any method to apportion the stage cost base to each lot within that stage to ascertain the lot cost base, including on the basis of either area, number of lots or anticipated selling price, provided that the method of apportionment you choose is fair and reasonable and takes into account the particular facts of your circumstances (as explained under our reasons for decision).

Question 4

Is the consideration for the acquisition of the real property also apportioned to the sea bed land to ascertain the stage cost base and further apportioned to each lot (wet lot) within a stage to ascertain the wet lot cost base, rather than solely apportioned to the stages and lots not on reclaimed sea bed land (dry lots)?

Answer

Yes, the consideration for the acquisition of the real property is also apportioned to the sea bed land to ascertain the stage cost base and further apportioned to each wet lot within a stage to ascertain the wet lot cost base, rather than solely apportioned to dry lots.

Relevant facts and circumstances

Your ruling is based on the following facts:

· You are registered for GST.

· You are undertaking a multi-staged development involving residential, commercial, marina and community facilities (Development).

· Some of the Development is on reclaimed sea bed land.

· The Development will include both 'wet lots' and 'dry lots.' A 'wet lot' is a lot created for the construction of a single residential dwelling on reclaimed sea bed land. A 'dry lot' is a lot created for the construction of a single residential dwelling not on reclaimed land.

· The lots within the stages will be developed and sold over many years.

· The calculation of the purchase price payable by you for part of the land was determined in accordance with the purchase agreement.

· You provided consideration for the land.

· No further consideration was provided for reclaimed land.

· You made a monetary contribution for the upgrade of a facility pursuant to the agreement to purchase the land (Facility Payment).

· The supply of the land was under the margin scheme for GST purposes.

· There are no separate contracts for the purchase of the land, rather the agreement to purchase such land is contained within the original agreements.

· There is no material change between the current Project Area and the original Project Area (although there have been minor adjustments to some of the boundaries).

Assumption

You have advised that you understand that there may be some settlement adjustments in relation to the consideration that you have provided for the land, however, for the purposes of this ruling you have requested these amounts not be included.

Reasons for decision

Question 1

Is the amount of the Facility Payment included in the consideration for the acquisition of the real property and accordingly included in the total consideration of for the entire Development for the purposes of subsection 75-10(2) of the GST Act?

Summary

The amount of the Facility Payment is included in the consideration for the acquisition of the real property and accordingly included in the total consideration for the entire Development for the purposes of subsection 75-10(2) of the GST Act.

Detailed reasoning

Division 75 of the GST Act allows you to use the margin scheme to calculate the GST payable on supplies of sales of real property if certain requirements are satisfied.

Under subsection 75-10(1) of the GST Act, if a taxable supply of real property is under the margin scheme, the amount of GST payable on the supply is 1/11 of the margin for the supply.

Subsection 75-10(2) of the GST Act provides that the margin for the supply is the amount by which the consideration for the supply exceeds the consideration for the acquisition of the real property, subject to specified circumstances.

Consideration for the acquisition of real property

In your case, in determining the consideration for your acquisition of the real property, we need to examine whether the amount of the Facility Payment you paid in relation to the facility is to be included in the consideration for the acquisition.

Under section 195-1 of the GST Act, 'consideration, for a supply or acquisition, means any consideration, within the meaning given by section 9-15, in connection with the supply or acquisition.' Subsection 9-15(1) of the GST Act provides that consideration includes:

· any payment, or any act or forbearance, in connection with a supply of anything; and

· any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.

Under subsection 9-15(2), it does not matter whether the payment, act or forbearance was voluntary, or whether it was by the recipient of the supply.

As part of the purchase agreement for the land, you were required to provide a new community facility.

Many transactions involve parties entering into multiple obligations. The question arises as to whether those obligations are consideration (or additional consideration) for a taxable supply. Goods and Services Tax Ruling GSTR 2001/6, Goods and services tax: non-monetary consideration examines this issue. Where it is a condition of a sale of land by a government agency to a GST registered developer that the developer will perform certain works for the government agency, the performance of these works would normally be a taxable supply and would form part of the consideration for the supply of the land. In this case the GST inclusive value of the supply of the 'works' by the developer constitutes non-monetary consideration for the supply of the land.

In your situation, the provision of the facility as contemplated in the purchase agreement would have constituted non-monetary consideration in addition to the monetary amount paid for the land supplied by the vendor.

However, pursuant to the purchase agreement, in the event that the facility was not constructed, you were required to pay an amount to the vendor and, consequently, you made the Facility Payment.

As the Facility Payment was made pursuant to the relevant provisions of the purchase agreement in acquiring the real property to be developed, it is considered that it was made as a condition of the sale of the land to you.

Consequently, the payment forms part of the consideration for the supply of the land to you and is included in working out the consideration for the acquisition of real property.

Therefore, the amount of the Facility Payment is included in the consideration for the acquisition of the real property and accordingly included in the total consideration for the entire Development for the purposes of subsection 75-10(2) of the GST Act.

Question 2

Can the consideration for the acquisition of the real property be apportioned on the basis of area for each development stage to ascertain the proportionate amount of the consideration that relates to each stage (stage cost base)?

Summary

You can use any method to apportion the consideration for the acquisition of the real property to each development stage to ascertain the stage cost base, including the area method, provided that the method of apportionment you choose is fair and reasonable and takes into account the particular facts of your circumstances. The area method of apportionment may not yield a fair and reasonable result in your circumstances

Detailed reasoning

Section 75-15 of the GST Act provides that where you supply a freehold interest, stratum unit or long-term lease and it relates only to part of the land or premises that you acquired, the consideration for your acquisition of that part is the corresponding proportion of the consideration for the land or premises that you acquired.

Relevant guidance in relation to the apportionment of the consideration for acquisition of land that was originally broadacres to subdivided lots is contained in Goods and Services Tax Ruling GSTR 2006/8, Goods and services tax: the margin scheme for supplies of real property acquired on or after 1 July 2000. In particular, paragraph 48 of GSTR 2006/8 states in part:

….. In the case of subdivided land or a stratum unit, the effect of section 75-15 is that the consideration for the acquisition is the corresponding proportion of the consideration for the real property that you acquired. If land that is part of the original broadacres is used for public purposes including roads, parklands or utilities ('lost land'), the acquisition consideration of the entire broadacres is apportioned to the total number of subdivided lots, so that the sum of the apportioned amounts equals the acquisition consideration for the broadacres (including the 'lost land').

Further, paragraph 58 of GSTR 2006/8 discusses use of fair and reasonable apportionment methods and states:

To ascertain the proportion of the purchase price that relates to the subdivided allotment or stratum unit, you may use any fair and reasonable method of apportionment. The method of apportionment used must result in the sum of the proportionate amount of the purchase price that relates to each subdivided allotment or stratum unit equalling in total, the actual consideration for the acquisition. You cannot change the method of apportionment after sales of allotments or stratum units have been made unless the changed method is applied to calculate the margin for all the sales.

Some examples of apportionment methods that may be used are provided at paragraph 59 of GSTR 2006/8. Two of the examples provided are:

· area - the consideration for the real property acquired is apportioned on the basis of the proportion of the total saleable area of the development represented by the particular lot, and

· anticipated selling price - the consideration for the real property that you acquired is apportioned on the basis of the proportion of the total anticipated selling price of the development represented by the particular lot.

It is noted that you have advised the results of the use of the area method as to the proportionate amount of the purchase price relating to each stage, expressed as a percentage of the actual consideration.

You have advised that some stages are the reserves for waterways (plus some public open space). It is noted that you have treated these areas as 'lost land', in accordance with the guidance contained in paragraph 48 in GSTR 2006/8, for the purposes of calculating the apportionment using the area method. These stages have not been allocated an area size for apportionment purposes.

In your case, you can use any method to apportion the consideration for the acquisition of the real property to each development stage to ascertain the stage cost base, including the area method, provided that the method of apportionment you choose is fair and reasonable and takes into account the particular facts of your circumstances.

However, as you have advised that the size and value of the stages in the Development may not be uniform and may vary significantly, the area method may not give a fair and reasonable result. The anticipated selling price method of apportionment may be more appropriate, although the Commissioner does not prescribe that you use a particular method.

Question 3

Can the stage cost base be apportioned to each lot within that stage on the basis of either area, number of lots or anticipated selling price to ascertain the proportionate amount of the consideration that relates to each lot (lot cost base)?

Summary

You can use any method to apportion the stage cost base to each lot within that stage to ascertain the lot cost base, including on the basis of either area, number of lots or anticipated selling price, provided that the method of apportionment you choose is fair and reasonable and takes into account the particular facts of your circumstances.

Detailed reasoning

You have advised that, when a development stage is further subdivided, the acquisition consideration for the real property apportioned to development stages will require further apportionment to each lot in the particular stage.

As discussed above, some examples of fair and reasonable apportionment methods that may be used are provided at paragraph 59 of GSTR 2006/8. Three of the examples provided are:

· area - the consideration for the real property acquired is apportioned on the basis of the proportion of the total saleable area of the development represented by the particular lot;

· lots or sites - the apportionment is based on the number of lots or sites, and

· anticipated selling price - the consideration for the real property that you acquired is apportioned on the basis of the proportion of the total anticipated selling price of the development represented by the particular lot.

In your case, you can apportion the stage cost base to each lot within that stage by any method to ascertain the lot cost base, including on the basis of either area, number of lots or anticipated selling price, provided that the method of apportionment you choose is fair and reasonable and takes into account the particular facts of your circumstances.

In some circumstances, you may use a combination of methods. Paragraph 61 of GSTR 2006/8 provides an example of a multi-staged development as where this may be done and states:

In some circumstances, you may use a combination of these or other fair and reasonable methods of apportionment. An example of where this may provide a fair and reasonable apportionment is a multi-staged development

Accordingly, where the particular stage has only similar sized or valued residential lots, we would consider that further apportionment on a lot basis would be fair and reasonable. Where a particular stage includes both commercial and residential areas such that size and value differ, we would consider that further apportionment on an anticipated selling basis would be a fair and reasonable method of apportionment.

However, it is relevant to note that there are circumstances in which you cannot change the method of apportionment after sales have been made. In your case, you have advised that selling has already commenced. Paragraph 58 of GSTR 2006/8 explains that you cannot change the method of apportionment after sales of allotments or stratum units have been made unless the changed method is applied to calculate the margin for all the sales.

Question 4

Is the consideration for the acquisition of the real property also apportioned to the sea bed land to ascertain the stage cost base and further apportioned to each lot (wet lot) within a stage to ascertain the wet lot cost base, rather than solely apportioned to the stages and lots not on reclaimed sea bed land (dry lots)?

Summary

The consideration for the acquisition of the real property is also apportioned to the sea bed land to ascertain the stage cost base and further apportioned to each wet lot within a stage to ascertain the wet lot cost base, rather than solely apportioned to dry lots.

Detailed reasoning

As part of the Development, you acquired an area of land that has been and will be subsequently reclaimed. Some stages and wet lots of the Development will be constructed on this area.

The purchase agreement specifies a price per hectare in relation to land other than sea bed land that is the total amount payable for all land purchased under the agreement.

In relation to the sea bed land, the purchase agreement provides that no further consideration is payable.

As the sea bed land was acquired pursuant to the relevant provisions of the purchase agreement, as part of the real property you acquired to be developed, it is considered that the sea bed land area was acquired together with the other land referred to in the purchase agreement for which the purchase price was specified. The supply of the sea bed land was part of the supply of land to you and was made as a condition of the sale of the land to you.

Consequently, the sea bed land area forms part of the real property acquired for which consideration is specified in the purchase agreement for the supply of land to you. It follows that in working out the consideration for the acquisition for the purposes of subsection 75-10(2) of the GST Act, the sea bed land is included in the acquisition.

Therefore, the consideration for the acquisition of the real property is also apportioned to the sea bed land to ascertain the stage cost base and further apportioned to each wet lot within a stage to ascertain the wet lot cost base, rather than solely apportioned to dry lots.